Gordon growth model
A share is the present value of its future dividends. With constant growth P₀ = D₁ / (kₑ − g). Watch the price blow up as growth g climbs toward the required return kₑ: the denominator shrinks to zero, so value gets extremely sensitive to the growth assumption.
Stock value P₀$40.00= $2.00 ÷ (8.0% − 3.0%)
Capped at 7.9% so growth stays below kₑ.
Try this
Bumping g from 3% to 4% lifts P₀ from $40 to $50, a 25% jump from a one-point change. Why does a tiny growth revision move value so much, and what does that say about trusting a single point estimate of g?